Eurozone Leaders Scrambling to Find Solution to Debt Crisis

German Chancellor Merkel and France's President Sarkozy hold a joint briefing at the EU summit in Brussels Photo: Reuters

Leaders of European Union (EU) have gathered in Brussels Belgium for an emergency summit to carve out some kind of resolution to the Eurozone’s seemingly intractable debt crisis.

However, with so much at stake – and with France and Germany wielding disproportionate power in the assembly – doubts are growing that a comprehensive agreement amenable to all parties can be reached.

Among other issues, the officials can’t seem to agree on how to (or whether to) enlarge the size of the rescue bailout fund -- European Financial Stability Facility (EFSF).

Chancellor Angela Merkel has urged legislators in her home country of Germany to approve measures for an expansion of the bailout fund, but she faces stiff opposition from lawmakers who do not want to place additional burdens on German taxpayers.

There are also ominous worries that Greece’s debt crisis may spread to the much larger economies of Italy and Spain (two Mediterranean nations saddled with huge debt and weak economies). A potential bailout of Rome and Madrid would likely greatly exceed the hundred-billion-plus in euros already allotted to Greece.

Robert Peston, business editor at BBC, wrote: “There will be no stability for the Eurozone without the bailout fund having the resources to do its vital job of demonstrating to the world that there's no possibility of Italy or Spain going bust.”

Italian Prime Minister Silvio Berlusconi – who reportedly resents ultimatums made upon his government by Merkel and French President Nicolas Sarkozy - is preparing to present plans of his economic reforms to colleagues in Brussels.

Still, some points apparently have unanimous support – for example, there is widespread agreement that banks in Europe must be recapitalized. It is believed that the big banks need to raise more than 100 billion euros ($139 billion) to defend against possible losses incurred by their exposure to Greece, Italy and Spain and other indebted euro zone nations. The EFSF – currently holding 440 billion euros ($612 billion) must be expanded – although how this would be managed is not yet clear.

Also, lenders to Greece will be asked to take deeper losses – perhaps as much as 60 percent.

Nigel Cassidy, a BBC correspondent, commented: “We may finally discover how much firepower has been amassed to try to blast away the debt turmoil steadily spreading from Europe's financially wayward periphery to its core. Few expect the final package reached at Brussels will quite be the big bazooka demanded by UK Prime Minister David Cameron. Yet the nature of the deal that's finally agreed will show whether the partners -- and Germany in particular -- have the will and capability to hold the currency zone together. We are about to witness what may go down in history as one of the most significant meetings in EU history.”

The stakes are indeed extremely high.

Francois Fallon, the French Prime Minister, told reporters that if the EU failed to find a solution, this could tip the European continent into unknown territory.